For much of 2013, the adjectives most commonly used by the Federal Reserve to describe the progress of the U.S. economic recovery were “modest” and “moderate.” For lay readers of the beige book report, those terms are not only hard to distinguish, but they are both extremely vague in nature.
But these negatives are inescapable: Terms like “modest” and “moderate” stand in for a numeric index, which would make the Fed’s reports much easier to summarize. It’s the central bank’s reading of current economic conditions that allows for a more detailed picture of economic growth, from which trends in consumer spending, manufacturing, and real estate can be picked out. The beige book report, released every six weeks, provides an anecdotal snapshot of the economy.
Given the anecdotal nature of the report, it is difficult to definitively say the economy noticeably improved in the past six weeks. Once again, economic conditions across the nation were mixed, although in general, growth progressed at a “moderate” pace. By district, economic activity expanded moderately in nine regions, including the Atlanta and Chicago districts, where conditions improved compared to the previous reporting period, while modest growth was reported in Boston and Philadelphia.
Only Kansas City reported that the economy held steady in December. That is a slight improvement from the previous reporting period, from early October through November 22, when data showed seven districts reported steady or “moderate” growth rates, and four districts indicated slower or “modest” expansion. However, the Boston distrcit did report growth was expanding, a description that was not used in the December report.
As for economic outlook, most districts remain positive, with several regional banks expecting “more of the same” and some expecting growth to accelerate. Contributing to confidence that future economic growth will be stronger — or at least reasonably moderate and no worse than the current pace — are improving trends in consumer spending, job creation, manufacturing, and real estate. Anecdotal evidence in these areas suggest “moderate” economic gains are mounting.
According to a Wall Street Journal analysis of the Fed’s use of the two terms, “modest” economic growth has a threshold of slightly below 2 percent of gross domestic product growth, “though it doesn’t seem to be an exact science.” Even after the “Fed speak” analysis from the Journal, the question of what exactly constitutes “modest to moderate growth” fails to create a solid storyline.
But the point of the Fed beige book is not to be a scientific analysis of economic growth — it’s meant to be an anecdotal description of economic conditions. December’s data indicate that a greater number of regions experienced steady or “moderate” growth rates than those that experienced slower or “modest” expansion.
Economic improvements are easier to see when certain areas are considered. The job market was of particular concern last year, especially in the middle third of 2013, when it seemed growing economic burdens were preventing business from expanding their payrolls. But in the last few months, the labor market began to gain momentum.
Each survey focuses in particular to a region’s major industries: the Atlanta Fed highlights the region’s tourism, the Dallas Fed focuses on the energy industry, and the Kansas City Fed on farming, for example. Recently, all regions have placed additional attention on consumer spending. Consumer spending accounts for approximately 70 percent of GDP, and because government and business spending have remained weak, the economy is depending even more on household spending to fuel growth.
Strong consumer spending is essential for the recovery of the American economy, and the Fed found that retail spending was “modestly to moderately higher” in most areas compared with a year earlier. Only the Richmond Fed district said retail spending slowed, while the Kansas City district experienced lower-than-expected holiday sales, “which retailers there attributed to a shorter selling season and harsh weather conditions,” the report says. According to a reading of retail spending compiled by the Department of Commerce, weather played a large role in December sales.
In addition to the improving labor market narrative and strengthening consumer spending trends, the market for real estate “generally continued to improve,” with home sales and construction increasing in most regions, and commercial sales and leasing growing in two-thirds of districts. The manufacturing sector saw steady growth and employment.
The beige book report also contains key information for Federal Reserve policymakers to analyze when considering whether to dial back the central bank’s monetary stimulus program.
Wednesday’s Beige Book release comes two weeks before the Fed’s January 28-29 policy meeting, at which time the Federal Open Market Committee will decide how to precede with plans to lower the monthly $75 billion per month bond-buying program, which was designed to decrease borrowing costs in order to boost stronger spending, hiring and growth.
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